Most Americans live in owner-occupied single-family houses. In Manhattan, the minority own rather than rent, and they own in multifamily buildings. Many of those apartments are co-ops, a singularly New York phenomenon. Except for a handful in cities including Washington and Chicago, market-rate co-ops are in New York. (Some places also have “limited-equity co-ops,” for which affordability rules govern sales.)
In the first quarter of this year, there were 1,430 co-op sales in Manhattan, compared with 964 condominium sales, according to a survey by Prudential Douglas Elliman. The average co-op price was $1.05 million; the median price (the midpoint, at which half the sales were for more and half for less) was $642,500, because lower-priced studios and one-bedrooms made up a much bigger share of the market than $1 million-plus luxury units.
In a co-op, owners hold stock in a corporation and have proprietary leases that permit them to live in their apartments. In a condo, residents own their units and share ownership of common facilities.
The biggest difference, from a buyer’s perspective, “is the lack of the right of alienation,” said Neil B. Garfinkel, a partner with the law firm Abrams Garfinkel Margolis Bergson. That’s the legal term for being able to rent or sell your property to whomever you choose. In a co-op, the board of directors has the right to turn down a buyer for any reason except those deemed discriminatory under fair-housing laws.
“Co-ops have always had the ability to reject,” Mr. Garfinkel said, “and the largest reason they would reject would be based on financial considerations. They never changed that, even in the crazy days of 110 percent financing. So, anecdotally at least, there have been significantly less defaults in the co-op marketplace.”
Co-op boards want to see “strong employment history, strong income and liquid assets,” said Shirley Hackel, an executive managing director of Warburg Realty. Boards disregard bonuses and commissions when weighing financial status, and they want to see low ratios of debt to income.
The difference between boards and banks was especially marked during the housing bubble, but in the last few years, lenders have become more conservative. “I used to say boards are much tighter and stricter than any bank,” Ms. Hackel said, “but I can’t say that anymore, because the banks have tightened up.”
Plenty of lenders are comfortable with co-ops — not only big banks, but also portfolio lenders, thrifts and credit unions, said Sari Sardell Rosenberg, a managing director of the Manhattan Mortgage Company. All review the building as well as the borrower, she said, examining its finances over several years. Since the financial crisis, lenders have insisted that buildings meet criteria like having sufficient insurance. For a while, that gummed up deals, but most Manhattan co-ops now conform with those rules, she said.
Loans insured by the Federal Housing Administration do not cover multifamily co-ops, Ms. Rosenberg said. But that is moot, because the big advantage of F.H.A. loans is a low down payment, and co-op boards often require even more than the 20 percent down that banks want these days. There are co-ops that require as much as 50 percent down, she said, and some on Fifth and Park Avenues allow only all-cash deals.
As with any loan, prepare to document your finances. “Typically,” Ms. Rosenberg said, “what I need from you is what the board will need from you. But I don’t need letters of reference telling how wonderful you are. We just care if you pay your bills on time.”
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